Ronald Reagan was known to joke that "I'm from the government and I'm here to help" were the scariest words in the English language. Whether or not he was right overall, one thing is for sure: when it comes to setting up operations in a new state, that municipality can very quickly become your company's best friend. Between helping to smooth the transition process and providing money to lure you in, including state governments in your corporate real estate planning is an excellent strategy that can save your company money.
The Government's Thought Process
When you have operations in a state, you're a profit center for the government. The space you occupy generates property tax revenue while your business pays a range of taxes on the profit it earns. Every employee that you hire not only takes someone off of the state's unemployment rolls, but also generates new tax revenue for the state. That employee goes out and spends the money that they earn, causing other businesses to hire more people, generating more tax revenue.
State Benefits to Businesses
Many state governments realize this and create economic development programs to help lure companies and operations. The benefits that they offer vary from state to state, and county to county, based on both that state's political climate and what it perceives as being of value. To give you an idea of what you can get, here are some of what different states offer to new or expanding businesses:
California. Generally not known as a particularly business-friendly state, California makes millions of dollars of incentives available to businesses that open the right types of operations. If you choose to locate in a designated "Enterprise Zone," you can earn up to $37,440 in state tax credits for every employee you hire, and claim an expense on certain equipment purchases instead of having to depreciate them for California state tax purposes. Opening a research and development facility anywhere in the state generates a 15 percent tax credit, as well.
Alabama. For qualified companies, Alabama offers property tax abatements that can temporarily reduce or eliminate your property tax liability for facilities that you occupy. Capital investments in the state can also receive a five percent tax credit, good for up to 20 years. In other words, if you spend $10,000,000, the state will give you back $500,000 in additional tax savings over and above your depreciation.
Iowa. If you grow your operation's workforce by at least 10 percent in Iowa, you can claim state tax credits of up to $1,560 for every new worker hired. A new facility containing what the state considers "high quality" jobs can also receive property tax abatements, refunds on state sales taxes paid to contractors, and even an investment tax credit, as well. Iowa also incentives research activities with refundable credits that you can actually cash out.
Maine. Maine offers an Employment Tax Incentive Financing program for businesses that will hire at least five non-retail employees over two years in benefited positions. If you meet their standards, they will refund between 30 and 80 percent of your state tax withholding on the employees to you. You may also be able to receive a personal property tax exemption on certain business equipment purchases as well as additional tax credits for research-related activities or operations in certain industries, ranging from forestry technology to financial services.
Before moving or opening locations, have a conversation with business development offices in the states you are considering. Their incentives, coupled with local incentives, could make a real difference in the profitability of your new operation.
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